ECB: Decidedly more dovish – Rabobank

The European Central Bank (ECB) left its monetary policy unchanged as expected but mentioned it will “recalibrate” its instruments in December. According to analysts at Rabobank, the ECB is likely to extend and increase the Pandemic Emergency Purchase Programme (PEPP) in December. They warn that the success of this move will largely depend on Eurozone governments joining forces with the central bank. 

Key Quotes: 

“It does not happen often that an ECB statement starts with the observation that “risks are clearly tilted to the downside”. Normally one would expect this to be followed by an announcement of monetary easing, but the ECB stopped short of that. This has only reinforced our conviction of imminent policy action, supported by a gloomier set of economic projections in December.”

“An extension (and expansion) of the PEPP remains most likely, but Ms. Lagarde hinted at a broader package of measures. We expect this package to also include further easing of the TLTROs or similar cheap liquidity providing operations, due to concerns that the bank lending channel may not fully transmit new easing. But the impact of all these measures largely depends on a similar response from the fiscal side.”